Prospects for Mongolian growth

Topic: BusinessInternational Marketing
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Last updated: March 31, 2019

As a lower middle income developing country, Mongolia ha has not shown its growth potential until last decade.

Investment in Mongolia now becomes a rational choice for the rapid economy growth and stable democratic political system. Discovering one of the world’s largest coal fields and other important minerals, Mongolian economy has been stimulated by the dramatically increasing demand of global energy especially be new developing counties. Moreover, economy will be accelerated by the high literacy rate of Mongolian and considerably attention on education and environment.Locating in the northeastern Asia between Russia and China, economy of Mongolia has been relying on exporting agriculture for a long period, which fluctuated with the seasonal weather.

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Currently, Mongolia has experienced the growing opportunity brought by its minerals reserve, which its real GDP growth continuously over 8% expects for 2009 and 2010. With the new project of exploit the Tavan Tolgoi mine, approximately 6. 4 billion tonnes of coal reserve will bring Mongolia 11. 9 and 14.

8% expected growth in 2011and 2012* with other mining project like copper, gold and rare earth.Mainly focus on the mining industry, Mongolia has shared large portion of the benefit from the rapidly development from Asia countries, especially steel industry from China and India. Though the commodity price has been volatile recently, the substantial customer and trading partner will provide Mongolia impressive profit from its reserve.

As a result of rapidly growth of real GDP, the government current account balance has been improved from -4. 6% of GDP in 2009 to expected 6. 5% in 2011 and increased foreign exchange reserve to 2. 288 billion in 2010*.During 2011, the inflation and exchange rate has hiked to 10. 6%* and 1,125Tg/$. That fact has warned bank of Mongolia to fight against the inflation and currency appreciation pressure.

Basically the inflation is caused by the increasing fixed investment like real estate industry and food price, increasing the overnight to 11. 5%* and exceeding economy growth will ease the inflation rate and appreciation pressure. The Ulan Bator stock exchange in Mongolia also has traded actively, which the index have risen 27%* during 2011 and further rise to 10 billion dollar in 2015 from 1billion now ^.To attract foreign investment, the stable and democratic political system makes great contribution to it. After abandoned the communism system 20 years ago, Mongolia have transformed into republic and election political system, which brought political freedom to Mongolian. Current co-organized government work well and keep relative peace and highly efficiency.

Though facing election in 2012, both parties make the current economy development policy which ensuring the consistent of policy and the broke would not challenge foreign investors.Uncertainty may rise if the economy meets trouble, there will be protest of foreign investment and inflation. However, under the rapid economic growth period, there is positive view to support the stable political environment. In addition, Mongolian government have imposed the benefit share plan that monthly $15 and onetime cash $550 subsidy for every citizen^. The new coal field exploitation plan also give out the company’s shares to citizens.

The government spending guarantee that normal Mongolian can experience the prosperity and release the dissatisfaction about privation state-owned corporation and encourage foreign investment.From international relation point, Mongolia has a safe and tightened connection with its trading partner and neighbour countries, such as Russia, China, US, India, Japan and South Korean. The abundant mineral reserves can satisfy the increasing demand for industrialization from China and India, which require the energy for their steel industry. These two countries will provide strategic partnership relationship with Mongolia in the long term. As the Japan and South Korean, they value Mongolia as important trading partner and rare earth exporter for domestic electronic manufacture industry.

For US, Mongolia is eager to receive financial aid and investment from high value-added industry for economy development in long turn. However, Mongolia relies on the energy source from Russia which may threat energy supply. Since there is no evidence proven the conflict of interest between two countries, Mongolia will keep a relative close relationship with Russia.

In general, Mongolia does not expect foreign conflict in the near future, which may have negative impact on economy. For domestic “software” side, Mongolian’ literacy has been kept to above 95% in past few years and government spent approximately 5. % of GDP in education expense in 2009, which ranked 39th in the world+.

The attention put on education by Mongolia government will benefit and accelerate economy when it change the mode from “export resource centre” to “manufacture centre “or “creating value centre”. Considering the environment issue in Mongolia, government has taken action to shut down about 1500 small t mining companies with reasonable compensation, since their activity have lead to inefficient production and over-pollution. With ample mineral reserves and increasing demand for resource globally, Mongolia will experience rapid economic growth in the next decades.The relative stable and democratic political system dramatically reduces the political risk domestic, and the tightened relationship with neighbors also eliminates the risk of having foreign conflict.

Moreover, the improving “software” in Mongolia guarantees the potential opportunity to gain economic growth in the future. In conclusion, Mongolia provides a great opportunity for foreign investors to generate profit with outweigh return than its risk. I have the confidence that investing in Mongolia will outperformance than investing in the domestic market in next decade.

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